37505 - Monetary Economics and Policy LM

Learning outcomes

This course aims to provide the main tools to analyze macroeconomic policies within a dynamic setting.  The first half of the course will be dedicated to the microfoundations of both aggregate demand and aggregate supply.  In this context, particular emphasis will be dedicated to the role of nominal and real rigidities as a basis for the derivation of the aggregate supply curve.  The focus of the second half will be on monetary policy within a dynamic context.  In this case, it will be analyzed the role of money in general equilibrium and the main methods to be employed to solve the workhorse dynamic model usable for policy analysis.  Main monetary theory will be discussed: inflation targeting, inflation forecast targeting.  The course will end with a careful discussion of the role of the information conveyed by financial instruments to monetary policy.

Course contents

1. Solving Dynamic General Equilibrium Models
2. Price rigidity mechanics and the analytical derivation of the aggregate supply curve.
3. The role of money in general equilibrium: money in the utility vs. transaction costs approach.
4. Intertemporal choices and aggregate demand curve.
5. The solution of the basic New Keynesian dynamic general equilibrium model by using computational methods.
6. Monetary Policy in general equilibrium.  
7. Inflation targeting and inflation forecast targeting.
8. Determinacy of the equilibrium.
9. The term structure of interest rates and its implications for monetary policy.

Readings/Bibliography

Walsh, C., “Monetary Theory and Policy”, latest edition, MIT Press.

Woodford, M., “Monetary Policy”, 2003, Princeton University Press.

Scientific papers suggested in lectures.

Teaching methods

Lectures and computer sessions training the main software employed for the solution to Dynamic Models.

Assessment methods

2 Homeworks

1 in class exam and a take home exam

The take home exam can be replaced with a term paper to be handed in according to teacher's directions.

Homeworks count for 20% of the final grade.  In class exam counts for 30% of the final grade, while the take-home exam or the term paper count (both equally) for the remaining 50 per cent of the final grade. 

Grades can be adjusted according to class participation

Teaching tools

Lecture notes, books, papers published on field reviews.

Office hours

See the website of Massimiliano Marzo